Tag Archives: economic mobility

Scholars Raj Chetty, Nathaniel Hedren, Patrick Kline and Emmanuel Saez (from Harvard and Berkeley) have garnered richly deserved attention for their interesting retrospective look at which places were the best in America for low-income kids to be born in 1980 and 1981 to assure the highest rates of youth mobility. [Amazingly, to do this, they were able to examine tax returns of all Americans and connect the youth with where they had grown up.]

[To explore the above map where blue areas are areas of highest mobility and red areas are areas of lowest mobility, visit the New York Times site.]

Their work rhymes with two pieces of research that we have done.

First, they find that the places that promoted the greatest level of mobility were places high in social capital. [For an image of social capital by state in the US c. 2000 see here.] This is less surprising, since other scholars have found that places with high social capital were among the places historically to invest in public high schools (e.g., Larry Katz and Claudia Goldin’s work on the birth of American public high school movement in the American heartland). Moreover, recent research by our research team, highlighted in Robert Putnam’s “Crumbling American Dreams” shows the changes in levels of community solidarity and togetherness, exemplified by the changes in his home town of Port Clinton, OH.

Second, they find that places with greater percentages of minorities were also places that afforded less social mobility for young people. This resonates with work of Ed Glaeser and Alberto Alesina on how it is harder to foster public investments in places of greater diversity (in the US and Europe) and work that we did in “E Pluribus Unum” that also discusses the short-term challenges of increased diversity.

Rana Foroohar’s cover story in TIME (Nov. 2011) is entitled What Ever Happened to Upward Mobility? Her answer is that it has stalled in the US and fallen behind rates of upward mobility in the US, Sweden or Denmark. According to Foroohar (and based on a Pew study), a male born in the 1970s into the bottom fifth of the wealth distribution had only a 17% chance of making it to the top wealth quintile. And while 50% of young males in this low-wealth quintile remained stuck there in the US, it was only 30% in UK or 25% in Denmark and Sweden, so upward mobility was much higher in those nations. [Swedish economist Markus Jantti led the research project that uncovered these numbers.]

Foroohar (after consulting experts from places like Goldman Sachs) says that China and other emerging countries are driving inequality by taking away good middle class US jobs. Foroohar believes that the answer lies in more progressive tax rates (with fewer loopholes) and greater investments in public education (which is the engine of economic mobility).

We have been doing work on the connection between income inequality and social inequality among youth (that exacerbates the test score gaps) and will report on that later, but suffice it say that we find a connection between the “blue inequality” (income inequality) and “red inequality” (the ability of college graduates to pass on advantages from a generation to another) that David Brooks writes about.

In November 2011, a variety of non-profit, corporate, academic and media leaders convened to discuss social mobility in the Opportunity Nation summit. Opportunity Nation has released an Opportunity Index that enables you look state by state or county by county to see how that locality is doing in terms of economic opportunity. And you can see videos of some of the speakers here. Rick Warren cited an eye-opening statistic: 25% of Anglo kids, 50% of Hispanic kids, & 75% of black kids are growing up today without a stable father in the home (these are out of wedlock births). This work is picked up in Charles Murray’s Coming Apart and in Nick Kristoff’s “The White Underclass“.

The Economic Mobility Project/Brookings analyses break the parent and child generations into fifths on the basis of each generation’s income distribution. If being raised in the bottom fifth were not a disadvantage and socioeconomic outcomes were random, we would expect to see 20 percent of Americans who started in the bottom fifth remain there as adults, while 20 percent would end up in each of the other fifths. Instead, about 40 percent are unable to escape the bottom fifth. This trend holds true for other measures of mobility: About 40 percent of men will end up in low-skill work if their fathers had similar jobs, and about 40 percent will end up in the bottom fifth of family wealth (as opposed to income) if that’s where their parents were.

Is 40 percent a good or a bad number? On first reflection, it may seem impressive that 60 percent of those starting out in the bottom make it out. But most of them do not make it far out. Only a third make it to the top three fifths. Whether this is a level of upward mobility with which we should be satisfied is a question usefully approached by way of the following thought experiment: If you’re reading this essay, chances are pretty good that your household income puts you in one of the top two fifths, or that you can expect to be there at age 40. (We’re talking about roughly $90,000 for an entire household.) How would you feel about your child’s having only a 17 percent chance of achieving the equivalent status as an adult? That’s how many kids with parents in the bottom fifth around 1970 made it to the top two-fifths by the early 2000s. In fact, if the last generation is any guide, your child growing up in the top two-fifths today will have a 60 percent chance of being in the top two fifths as an adult. That’s the impact of picking the right parents — increasing the chances of ending up middle- to upper-middle class by a factor of three or four.

Two of most startling charts of testimony were one by CBO showing how the income of the top 1% is the one cohort that has done well over the last 40 years in the US economy:

And one showing that, unlike in most countries where progressive taxation is used to curb the excessive inequalities of the market and ease the distribution somewhat, the tax and transfer system in the US actually make inequality WORSE.

George W.’s speechwriter has an Op-Ed noting that we should focus more on economic mobility than economic inequality and we couldn’t agree more:

Excerpt:

“Still, the most important measure of U.S. economic success is not income equality but social mobility. Economic inequality can be justified in a fluid society, in which economic advancement is a realistic goal. Economic inequality in the absence of economic mobility amounts to a class system in which the circumstances of birth are the main economic blessing or curse….

“There remains a considerable amount of economic mobility, upward and downward, in the middle class. But nearer the bottom of the income scale, upward mobility is weak and stuck. As a result, according to the Economic Mobility Project, the U.S. economy is less fluid than the economies of Canada, France, Germany or the Scandinavian countries.”Individual advancement is closely tied to educational achievement and family structure. An economy that rewards skills and other forms of human capital is not a good place to be a dropout with a child out of wedlock.

“Conservatives are correct that tax increases on the wealthy to fund entitlement commitments that go mainly to the elderly would do precious little to address this problem.

“Liberals are right that a combination of rising economic inequality (even if the rise is gradual) with stalled economic mobility is an invitation to destructive social resentments. Americans will accept unequal economic outcomes in a fair system. They object when the results seem rigged. That way lies the Bastille.

“So the question comes to liberals and conservatives: If social mobility is the goal, what are the solutions? What can be done to improve the quality of teachers in failing schools, to confront the high school dropout crisis, to encourage college attendance and completion, to reduce teen pregnancy, to encourage stable marriages, to promote financial literacy, to spark entrepreneurship?

“Both Democrats and Republicans should have something to contribute to the development of this agenda. Neither party, however, currently has much to say. And this is not likely to change until the discussion turns from equality to mobility.”

Robert Putnam was on the NewsHour yesterday in a story by Paul Solman on how inequality and decreasing economic mobility are affecting Americans even as the economy modestly recovers out of the Great Recession.

Excerpt:

PAUL SOLMAN: So, the American dream — your kids will do better than you — neither you nor your kids think that that`s the case?

COOKIE SHEERS: No, we all feel stuck in a rut. You feel like you can`t move, you can’t grow, like you’re just at that edge of water where you can come up for air every few minutes, but never long enough to feel that you have accomplished something. You always have to go back down.

BOBBY HICKS: Like she says, I feel like, once I feel like I have reached that part where my nostrils can come out the top, life comes back and just steps right on my face and says: You know what? It’s not time for you to come up for air yet.

PAUL SOLMAN: The numbers support the stories. Economic inequality in America, widening steadily since 1980, grew during the financial crisis, with the top 5 percent of Americans owning 65 percent of national wealth by mid-2009, up from 62 percent two years before. The losers were the bottom 80 percent, whose share of wealth fell during the crisis. Nearly half had negative net worth by mid-2009….But, at least historically, there was always the very real hope of moving up, at least across generations.

ROBERT PUTNAM, Harvard University: That isn’t true anymore….So, one of our competitive advantages as a — as a society, which used to be that we were very mobile, and we were constantly getting new infusions of talent and so on at the top, and — and that people down near the bottom had a hope that, if they didn’t do well, their kids could do well in the past in America.

That a poor kid could grow up in a tenement, go off to city college, do well, and himself end up in the next generation pretty well-off, that’s what’s becoming less likely in America. And I think that undermines a crucial part of the American myth or the American dream or the American social contract.

PAUL SOLMAN: Adds economist Sam Bowles:

SAMUEL BOWLES, Santa Fe Institute: America is distinct in the extent to which inequality is inherited from generation to generation. The kids of rich parents have a strong tendency to be rich, and the kids of poor parents are very, very likely to be poor. That’s one of the things which I think Americans find most shocking. That’s a huge discrepancy from what we think of as the land of opportunity.

Even a college-education, the key ingredient in economic mobility, doesn’t seem to immunize Americans from these economic problems:

DENISE BARRANT: In our family, everybody is college-educated. Most of us have masters’. Myself, I’m unemployed. My brother is unemployed. People used to think it was a guarantee. It is not. To invest $200,000- plus in an education, with no guarantee that you have a job, is scary.

PAUL SOLMAN: As for Bobby Hicks’ job, it’s inequality, he says, that makes it possible.

BOBBY HICKS: In the security industry, you know, there is a demand for jobs, because the rich want to protect their assets.

PAUL SOLMAN: But those jobs are low-pay and low-prestige, despite the high stakes.

BOBBY HICKS: A pressure release valve for the domestic water in the building broke. And there was water flooding, and this was on the sixth floor. If their servers got wet, it would have wiped out the entire East Coast for this one particular company — and Bob, $9 an hour, to the rescue. Make the call, count on you, all right? But, if I screwed up, you’re gone.

Note: the story is factually incorrect in claiming that Robert Putnam helped run Harvard’s Inequality Program. He has never done that and Bruce Western runs Harvard’s Inequality Project currently, but Harvard’s Kennedy School Saguaro Seminar which Putnam leads has been undertaking a 4-5 year investigation of a growing youth social class gap.

Doyle McManus (of the L.A. Times) has a nice piece citing Robert Putnam on some of our unpublished research evincing “canaries in the coalmine” that are likely to block upward mobility in the US in the decades ahead if unremedied.

Opportunity in America isn’t what it used to be either. Among children born into low-income households, more than two-thirds grow up to earn a below-average income, and only 6 percent make it all the way up the ladder into the affluent top one-fifth of income earners, according to a study by economists at Washington’s Brookings Institution…. Children born into poverty in Canada, Britain, Germany or France have a statistically better chance of reaching the top than poor kids do in the United States….

[In addition to the decline of public schools,] Harvard sociologist Robert Putnam argues that thanks partly to the rise of two-income households, intermarriage between rich and poor has declined, choking off another historical upward path for the underprivileged….”We’re becoming two societies, two Americas,” Putnam told me recently. “There’s a deepening class divide that shows up in many places. It’s not just a matter of income. Education is becoming the key discriminant in American life. Family structure is part of it too.”…

“Success in life increasingly depends on how smart you were in choosing your parents,” Putnam said. “And that flies in the face of the fundamental American bargain — that every kid ought to have access to the same opportunities.”…Most Americans accept inequality in the economy as long as the ladder of opportunity is accessible to anyone who wants to work hard. The best way for America to reclaim its self-image as a land of opportunity is to ensure that every kid has access to a decent education — now more than ever the first step onto the ladder. That’s why bipartisan education reform isn’t just about fixing schools; it’s about repairing the fabric of American society.

Paul Krugman in “A Tale of Two Moralities” (NY Times Op-Ed, January 15, 2011) writes: “…I’ll also have a lot to say about how far we really are from being a society of equal opportunity, in which success depends solely on one’s own efforts.”

Michael Gerson (Washington Post columnist) also had a very thoughtful column on this issue, indicating that this issue (upward mobility) should be the issue that Republicans should be discussing. See “The economic debate that we should be having” (Dec. 14, 2010) Gerson writes:

“…the main reasons for inequality are failing schools, depressed and dysfunctional communities and fragmented families. For the most part, inequality does not result from a lack of consumption by the poor but from a lack of social capital and opportunity.

This does not release conservatives from responsibility because the distribution of social capital and opportunity is dramatically unequal. Economic inequality can be justified as the reward for greater effort – so long as there is also social mobility. In the absence of mobility, capitalism becomes a caste system. And this is what America, in violation of its self-image, threatens to become. The United States has less upward economic mobility among lower-income families than Canada, Finland or Sweden. Americans who are born into the middle class have a roughly equal chance of ascending or descending the economic ladder. But Americans born poor are likely to stay on its lowest rungs.

Addressing the actual causes of inequality should be common ground for the center-left and center-right – and politically appealing to American voters, who are generally more concerned about opportunity than income equality. A mobility agenda might include measures to discourage teen pregnancy; increase the rewards for work; encourage wealth-building and entrepreneurship; reform preschool programs; improve infant and child health; increase teacher quality; and increase high school graduation rates and college attendance among the poor. Children of low-income parents who gain a college degree triple their chance of earning $85,000 a year or more. If America had the same fraction of single-parent families as it had in 1970, the child poverty rate would be about 30 percent lower.”